Cats Out of the Bag
Operation Heavy Metal
Two years ago, we briefly touched on the impact of catalytic converter thefts on average people - expensive repairs they could ill afford - as metals prices shot up during the pandemic. The palladium group metals (PGMs) in the filters became so valuable and cats were so easy to remove from most cars it spawned a nationwide crime wave.
One question we couldn’t answer in 2021 was - where did all those stolen cats end up? The answer, it turns out, was a nationwide network of junk buyers and metals processing companies that moved over half a billion dollars in cash in two years. Last November, state and federal authorities arrested dozens of people accused of taking part in the scheme. How did it all unravel?
We talk a lot around here about police departments and their lack of efficacy. Typically, when people complain about poor clearance rates and police apathy, they cite violent crime and murder. But property crime calls make up the majority of any department’s case load, and they are even worse at solving them, likely due to a lack of press attention. With those facts in mind, it is fitting that the nation’s biggest catalytic converter bust began with one stubborn investigator in Tulsa, Oklahoma, assigned to the case because his name was Kansas Core:
Core had been on the force for fewer than three years and was green enough that his move to street crimes “kind of ruffled feathers,” Staggs says. But a commander had elevated him there after seeing a certain industriousness and precision in him.
[…]
“There’s this ‘We don’t care about catalytic converters, because it’s a property crime’ ” camp at the department, Staggs says. “It’s not a sexy crime. It’s not the robberies and the homicides.” When the previous commander gave Core the case, it wasn’t exactly hazing, but it wasn’t far off. “I’m pretty sure that lieutenant basically was like, ‘Core, you’re the up-and-coming guy,’ ” Staggs says. “ ‘Your last name is Core, and all the criminals call these cores. Here you go.’ ”
Isn’t that just policing in a nutshell? A young cop is promoted because he’s good at solving crimes which pisses off the other (bad at solving crimes) cops who decide to haze him by sticking him on a case they ‘don’t care about’ because it involves thieves stealing expensive bits of cars. Unlike his peers, Core understood the gravity of the situation:
…Core had become an evangelist of what Staggs now calls Camp 2—“the camp of people that are like, ‘no, this is really affecting people.’ Church vans, U-Haul businesses, insurance companies that are having to replace these things, elderly people. You know, it crosses all demographics.” Core didn’t just want to bust cutters around Tulsa. He wanted to trace the problem and “cut off the head of the snake.”
Rewinding a little, the Tulsa investigation kicked off because local police stopped a truck belonging to a Tyler Curtis, who ran Curtis Cores, a middleman recycler for catalytics. He was busted with drugs, nine grand in cash, and one hundred twenty-eight cats, which he claimed were obtained legally. He copped a plea, and went back to running his recycling business.
Elsewhere, Tulsa PD had arrested some ‘cutters’ during busts for catalytic theft, and at least one of them was linked to a delivery at Curtis Cores. With the arrival of plucky Kansas Core, cops set up surveillance on Curtis Cores and over the next eleven months worked their way up the body of the snake in search of its head.
The uh, torso of the snake was DG Auto, an unassuming metals recycling and used auto parts company in New Jersey. It was run by two Indian immigrant brothers, the Khannas. The business of disassembling used cars is not a glamorous one, and for years the brothers ran a steady but unexciting business. Then COVID-19 happened:
Upwards of 60% of all PGMs used in catalytic converters are extracted in South Africa, and pandemic-shuttered mines and transportation issues decimated the global supply.
[…]
In December 2019 the price of rhodium stood at $6,000 an ounce. By March 2021 it would top $29,000. Platinum and palladium underwent similar spikes.
The Khannas seized on the opportunity and bought ‘decanning’ machines to extract PGMs from cats which could be refined and sold back into the market. This was great, assuming DG could find enough sellers to keep its operation rolling. They did, via the favored tool of shady businessmen around the world - Facebook:
Over the years, much of the trade migrated onto Facebook, where companies such as DG and Curtis Cores advertise and sellers share photos of the cats they’ve picked up. Lovin [Logan Khanna] was soon an inescapable presence on the major groups, a testosterone-heavy community where the proof of your rise-and-grind mentality is a selfie in front of a U-Haul stacked with grungy cats.
DG launched an app offering sellers up-to-the-day pricing for twelve thousand different cat types. Sellers could submit details, lock prices in, and show up at DG days later to be paid in cash. The business grew quickly, as did their ambitions:
The Khannas began advancing millions in cash to their biggest buyers, including Curtis Cores, which could then pay the highest prices on the street.
Tyler Curtis was a 24-year-old college dropout running an operation in rural Oklahoma, and the Khannas were handing him literal duffels full of cash to purchase cats. Were all the cats stolen? Who knows. All that mattered to the cops was that any of them were stolen, and whether Curtis and Khanna knew about it.
With the nuts and bolts out of the way, we’ve arrived at the ‘Don’t Post Your Crimes’ segment of the caper. Cat buyers and sellers absolutely loved that shit:
Hailey, the scrap car buyer, posted a group photo from the Khannas’ back porch to Facebook. “All In The Family DG Catalytic Family Millionaire Club,” he captioned it.
[…]
Core, too, was a fan of the pile-of-cats selfies, noting dryly in one affidavit that “criminal offenders usually maintain these photographs in their possession.”
Right, yes. Do not post literal evidence of your crimes, and also do not discuss your crimes via Facebook:
Early on, when investigators started examining the Facebook accounts of Curtis’ employees, they’d found two of them discussing all the cutters the Tulsa PD was arresting. “We definitely buy from guys that steal but pretend like we don’t know,” one of them wrote.
“I guess make the money til you can’t,” the other replied.
Indeed. The end for Curtis and the Khannas came in November, when the investigation - which now included an alphabet soup of DoJ, FBI, IRS, etc - swooped in on the entire operation, arresting everyone on a wide array of charges. The Khannas are being held without bail in California.
Kansas Core wanted to cut the head off the snake, but did he? Who did the Khannas sell to? Turns out, a Japanese recycling conglomerate with a US subsidiary bought the PGMs and shipped them back home:
And a subpoena for the Khannas’ bank records revealed that in just over a year from March 2021 to April 2022, Dowa had transferred $224 million into a single DG account. Another account showed $175 million worth of Dowa infusions.
Dowa Metals & Mining America paid DG, then shipped the metals back home for refinement. DG was not Dowa’s only seller, but the company’s name was left out of any criminal proceedings, fully redacted in court documents.
The plucky cop who decided to treat property crime as actual crime did get results - in Tulsa, at least, cat theft is down following the bust - but, at least for now, the corporate conglomerates keeping the international PGM trade running are free to do business as usual.
Trafigura Group
Back in the spring, news of a different half-billion-dollar metals case broke - Trader Trafigura Group discovered shipments of purchased nickel didn’t actually contain nickel. It turns out the man allegedly behind the ruse is a different Indian businessman relying on a network of downstream players to front his operation, including a guy who owns a porn-themed sandwich shop in Hong Kong:
Nestled in an alley near Hong Kong’s bustling Tsim Sha Tsui shopping district, Sandwich Hub sports a logo modelled on that of adult entertainment site Pornhub, along with the tagline: “Sandwich that’ll make you come”.
The hole-in-the-wall Indian food joint’s owner Aman Chourasia, a jovial 30-year-old with a baby-faced grin, is enthusiastic about its offerings, with its low-priced fare such as cheese aloo toast and masala tea.
I needed an excuse to quote that bit, but the man allegedly behind the scheme is a Dubai-based metals trader named Prateek Gupta, who may have used Chourasia and others as patsies in his scheme.
How one man was able to defraud a multi-billion dollar metals giant out of half a billion dollars using sandwich shop front men boils down to the oddities of the international commodities trade. Initially, Gupta sold Trafigura metal, which it sold on to its customers. Then came the buybacks.
A thing you can do if you are shipping large quantities of metal around the world is sell your metal to a company like Trafigura for the time it’s on a ship - essentially an insurance contract for the transit - and buy it back on arrival. Companies took advantage of buybacks as a form of short-term cash financing while they waited on deals to close:
At times the “voyage periods”, or the amount of time before the companies had to repay the money, were “intentionally maximised” so the companies could keep hold of the money paid by Trafigura for as long as possible, Oikonomou said.
Setting aside the global climate impact of sending huge piles of metal around the world on slow boats to nowhere, the relationship was obviously vulnerable to fraud if Trafigura didn’t do its due diligence properly, which it appears to not have done:
Chourasia incorporated Spring Metal in the low-tax, high-secrecy Malaysian offshore centre of Labuan in January 2015 when he was in his early twenties, according to corporate records, three years before he set up Sandwich Hub.
Nor did they inspect the shipments:
The commodity trader did not usually physically inspect the shipments, until Citi started insisting on checks in October, according to Oikonomou. Trafigura did not always insist on providing documents from the metal’s producer known as “certificates of analysis”, he added.
Not great! Eventually, Gupta’s plan unraveled when eventual buyers of the fake nickel realized it was not nickel, which Gupta had to know would happen eventually. Trafigura is suing him and the various companies, dragging in his witting or unwitting accomplices.
What’s most interesting about the story is how flimsy so many of the trust systems that undergird our economy actually are. If you’re a international metals shipping giant and some guy from Dubai says he’s got half a billion worth of nickel being shipped by a guy running a porn sandwich shop, apparently you just take him at his word, and don’t waste your time opening the thousand containers you’ve got sitting on the dock.
Student Loans
We talked last week about the Court’s absurd decision to force millions of Americans to continue to suffer under student loan debt. Years ago, Congress decided student loans should be difficult to discharge in bankruptcy, essentially making them long term obligations. But, do people actually pay them off? These researchers say - not really:
Regardless of what happens after the scheduled resumption of payments in September and to the Biden administration’s plans for partial student debt forgiveness following the Supreme Court’s ruling in June, we predict that most of the outstanding balances — not to mention the roughly $100 billion in new loans issued every year — won’t ever be repaid.
A major problem with our punitive student loan system is many borrowers aren’t able to pay enough towards principal to keep interest from accruing - a simple web search will turn up reams of stories of people who owe more after years of making payments.
Large debt loads, increasing balances due to interest, and reduced payments thanks to income-based plans saddle low income workers and minorities with an outsized share of debt they simply won’t ever be able to pay back. How did we end up with such a dumb, fucked up system?
This situation is the fruit of a tacit agreement among state legislatures, college administrators and the federal government dating back to the 1970s: defund public colleges and universities and shift them to a tuition-based revenue model, with the federal government backstopping the system with student debt so that more students can continue to obtain more expensive education.
The stark divide in earning power between Americans with and without college degrees forced millions into debt seeking a better life. How many working professionals do you know who still have six-figure student loan tabs? Lawyers, doctors, and other high-earning professionals can be stuck paying off their education for decades. And they’re in the echelon of those fortunate enough to ever pay their loans off.
The authors estimate $1.7 trillion dollars’ worth of student loan debt will never be repaid. This means taxpayers are subsidizing education, but only after the borrower has suffered a lifetime of indignity under an impossible debt burden. Unfortunately, those in power in this country are resistant to reforms to make education affordable, because it would remove the advantages inherent in a system where the wealthy and well-off can secure a sparkling new degree and immediately start earning and saving towards a prosperous future.
Biden’s student debt relief package - whether you thought it was meager or overly generous - was an attempt to begin to level the playing field, albeit reactively. Proactive change involve the government stepping in to properly fund higher education before a student has to pay a tuition bill. But the American obsession with debt as a moral obligation has instilled in a large swath of populace the idea that any reduction or elimination of money owed is either a slippery slope to welfare entitlement or unfair to everyone else. Lost in the argument is the fact that society will forgive most of those loans eventually, and the moral act would be to do it up front rather than when it’s too late to make a difference.
AI
It feels like every week there are enough stories about AI to fill a newsletter, but we’ve got limited space (and patience) in these pages, so let’s do a short round-up of what shenanigans the industry has been up to.
Google’s Bard is being ‘trained’ by thousands of contractors at firms like Accenture, paid low wages and working under frenzied conditions. They’re expected to assess answers to legal and medical questions with no expertise and deadlines as short as three minutes. Elsewhere, Google is being sued for scraping data to train it’s AI.
Landlords are, of course, harnessing AI to select tenants. Given AI’s propensity to ‘hallucinate’ and make up facts, it’s an ominous development that some of the country’s biggest landlords may use it to deny rentals and invade the privacy of potential applicants.
Insurance companies have long hoped machine learning, automation, and AI would be a panacea for an industry defined by slim margins and actuarial uncertainty. Well, markets don’t seem to think the recent wave of ‘insurtech’ firms are doing a particularly good job, and the industry is slumping as algorithms fail to provide the promised value.
AI-generated imagery poses a terrifying new front in the battle against child pornography. Thousands of images have been found across the dark web, sparking debate around whether they actually violate the law since they depict kids who don’t exist. Lovely.
Short Cons
WaPo - “In one study, Jung and his colleagues looked at car emission sources along two highways in Long Beach and Anaheim in January and February 2020. In Anaheim, they found brake and tires constituted 30 percent of PM 2.5, whereas exhaust emissions linked to gasoline and diesel constituted 19 percent.”
HellGate NYC - “According to the indictment, the six defendants distributed their own cash to a group of more than two dozen straw donors, who then made smaller donations to Adams's campaign in order to trigger the matching funds.”
LA Times - “A Los Angeles judge on Wednesday ordered the Twitter personality and online journalist to transfer his earnings — spelling out sources including Twitter, Substack, Venmo, GoFundMe and more — to a judgment creditor until his lapsed loan from Ariadne Getty, granddaughter of oil tycoon Jean Paul Getty, is repaid.”
WaPo - “For what is widely believed to be the first time in its 128 years of existence, the International Olympic Committee cut ties with a sport’s federation when its members voted Thursday to withdraw recognition of the scandal-plagued International Boxing Association.”
ProPublica - “Student learning across the country, as measured by many assessments, has stalled to an unprecedented degree. Researchers have pointed to a number of causes, including the trauma experienced by children who lost family members to COVID-19, but the data generally shows that the shortcomings are the greatest in districts that were slowest to reopen schools.”
CNN - “The settlement comes after 3M faced thousands of lawsuits for the last two decades over its manufacturing of products containing PFAS. These lawsuits allege that 3M knew PFAS caused cancer, developmental defects and other health problems, and that the chemicals contaminated US drinking water systems.”
Jalopnik - “Companies like FedEx ordinarily get rid of their delivery trucks when they hit their operational limit, usually around 350,000 miles, but, in the suit, plaintiffs say a scheme involving old trucks started over a decade ago, when FedEx decided to stop scrapping the trucks and sent them to auto auctions instead.”
Know someone thinking of forming an offshore shell corporation to assist in international metals fraud? Send them this newsletter!